Hard as it may be to believe, pay inequality exists even among company chief executives.

Many of the recent incoming chief executives are being paid less than their predecessors.

Telstra
chief
David Thodey
’s pay packet was less than that of the combative Sol Trujillo he replaced. Qantas chief executive
Alan Joyce
’s remuneration hasn’t soared to the heights of that of his former boss,
Geoff Dixon
.

And this year,
Mark Selway
, who became chief executive at
Boral
, found himself earning less than
Rod Pearse
, whom he succeeded. So did
Terry Smart
who took over from
Richard Uechtritz
at
JB Hi-
Fi and
Paul Zahra
, who was swiftly elevated to the top of David Jones after Mark McInnes left following the sexual harassment scandal.

Does this mean that some boards are penny-pinching on incoming chief executives or are they just more sensitive to the public outrage around executive pay?

Critics who claim that executive pay packets are too high and out of touch with the broader environment have redoubled their efforts recently after Commonwealth Bank revealed that the total remuneration package of its chief executive Ralph Norris was $16.2 million.

“The whole remuneration issue is very, very sensitive and there’s certainly a public view out there about CEO packages,"
Boral
and
Wesfarmers
chairman
Bob Every
says.

He notes that much of the public outrage occurred when prodigious sums of money were paid to chief executives even when they failed and were shown the door.

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But there is also a view that chief executives are paid too much – a view shared by at least one chairman of a top 25 listed company. “Boards and chairmen need to take a good look at what is appropriate in terms of the value add of the senior people in the organisation – that needs to be put in relativity with other parts of the community, while recognising top talent needs to be rewarded at a top level," said the chairman, who did not want to be named.

Every also argues that when recruiting the best leaders, companies have to pay – and pay well – but within reason.

“The first point I’d make is that CEOs probably have an average tenure of about five to six years and they do a long apprenticeship before they get there. I think people forget that at times.

“And I know it’s also not a popular concept, but you have to be competitive in the market to get talent. The CEO’s role is also 24/7 and people in those roles do work exceedingly long hours."

Still, Every believes there has been a levelling out on executive pay at some companies. “In the Boral case, for the incoming CEO Mark Selway, we tested the market and had to offer a package that was market competitive but in effect was less than what the prior CEO was getting. In reality, we had to offer what we thought was a competitive package at this point in time and we did. Mark was in an existing job and we had to offer him a package that was attractive enough for him to come to [Boral]."

Leighton Holdings
chairman David Mortimer has flagged that incoming chief executive
David Stewart
will earn less than his predecessor
Wal King
and have a pay deal that is more in line with the expectations of shareholders.

Whereas King received his bonuses in cash, Stewart’s deal will be more equity based. “Times have changed and we have to move with the times," Mortimer told last week’s annual meeting.

Experience affects what a company will pay, says David Pumphrey, a partner at executive search firm Heidrick & Struggles.

“Boards take the view that they’re bringing in somebody who is less experienced in terms of relative number of years spent with that company or in that position," he says. “So they may start out on less and it gives them room to move up – and hopefully that’s where long-term and short-term incentives come into play."

This appears to be the case with Boral. “We had a situation where we had a new CEO coming in with a good track record but replacing somebody who had been 10 years in the role," Every says. “In that situation, you’ve got the existing CEO, who is very mature and really at the top of their package, against somebody starting anew on what might be a five or six-year journey."

Every says his aim is to simplify long-term incentives. “With long-term incentives, we’ve become too formula driven and too algebraic and in some cases made long-term incentive packages too complex.

“If I have one objective in my time as a director, I would like to see long-term incentives become simpler and easier to explain."

One downside of some packages is that even when a company’s performance drops and a CEO’s take-home pay also falls, the executive’s overall total may go up because of the maths on the long-term incentive.

“And that causes a lot of problem with perception," Every says. In such cases, chief executives might be demonised for raking it in.